I'll bring it in a second. Yeah. All right, let's get started here. Thanks for joining us, everyone. I'm Parker Lane, software analyst here at Stifel, and joining me today is the PROS team. We've got John Bruno, VP of Strategy, and Belinda Overdeput, Senior Director of IR. Thank you both for being here. Thank you for having us. Thank you. You've been a long-time participant, so- Yes. It's great to have you. Belinda, maybe we can kick off with you. You know, PROS has been around a long time. Mm-hmm. But there's still some people that don't know the ins and outs of the story- Yeah. It's changed a little bit post-COVID. Maybe you could start there, and we can talk about recent developments in the business. Yeah. So we're PROS Holdings. We sell, or we bring to market, AI-powered solutions that power everything from offer marketing to revenue management to dynamic pricing and configure price quote, or sales optimization solutions. So you can think of PROS as essentially driving an optimized end-to-end commercial offer for our customers. I like to tell people we've been doing AI since before it was cool, and our solutions are highly valuable. We can actually quantify and measure the ROI that our customers get. We did a study of over 130 customers that generate, on average, 8% revenue uplift, 200-500 basis points of margin improvement, and 67% efficiency gain with the use of PROS solutions. These metrics have actually been verified by third parties and may be understated in some cases, which we recently learned at our customer conference last week. So we're super proud of the value that we provide. On a trailing 12-month basis, we're about $311 million in revenue. 84% of our revenue is recurring. We've built a really healthy SaaS business with a gross revenue retention rate of over 93%. So super happy to be here. We have a massive market opportunity in front of us, and I'm excited to get into the questions. Yeah, I mean, I think AI is a good place to start. Mm-hmm. You've been doing it since before it was cool. Yep. Now it's very cool. Yeah. Can you talk a little bit about your AI strategy, what that really means to be doing it before it was cool, and how that manifests in your product? Yeah. Yeah. Do you want to kick us off? Happy to. I think the AI strategy is really twofold, right? One is, in the form of our products, but also how we use it internally. So for our products, you know, for decades now, we've been powering AI solutions that help, like Belinda had mentioned, really optimize that, that commercial offer. And over the years, we've developed, you know, dozens of different AI techniques and models that we use. The latest that we're really excited about is our Gen 4 AI, which leverages neural networks. So in a world of pricing and selling, many businesses struggle to define, you know, the appropriate segmentations of their customers. And with neural networks, it really just kind of mimics the way the human brain works and identifies all of the attributes that are driving price or product recommendation for any given offer. So we're really excited about what we've brought to bear from a product standpoint, but it's also manifested itself in one of our three corporate strategy pillars internally, which is we want to infuse AI in everything that we do. So we see, you know, from a, a front row standpoint, the power that AI has in transforming the businesses of our customers. We want to bring that to everything that, that, that we do. So everything from professional services to how our sales teams respond more quickly to our customers. You know, we want to help the market, adopt AI solutions, and the best way to do that is to be a steward and consumer of them ourselves. What has it meant for demand? Has the whole AI boom spurred additional demand for you guys, or is it just helping you tell your story more effectively? Well, what's interesting is that the problems that our customers typically face have remained the same, but increasingly, how they're looking to solve those problems is through AI. So I would say, it's a lot more common now that we're being asked specifically about our AI capabilities and how AI solutions can solve those problems. So, while we've been doing it for a while, I think right now is a great opportunity to, you know, take advantage of the power of the platform. Yeah. Belinda, you mentioned that you just had a conference. Mm-hmm. You talked to a lot of customers. Yep. ROI is even better than you guys suspected. Yep. Help us understand a little bit on the price optimization side, why people aren't using solutions like PROS if there is such a tangible benefit? Yes to their business? Yeah. It feels like a no-brainer, right? And so we just had a record-breaking Outperform conference, most attendees that we've ever had. It's our annual user conference. It was in Orlando. Stifel was there. It was great to have you guys. But overall, when we look at the market, we're predominantly operating in industries like industrial manufacturing or chemicals and energy or distribution-type industries in areas like food or medtech, and you would be surprised how many businesses are still operating pricing in a very manual way, whether it's through Excel spreadsheets or through static files or rate sheets that they're providing to their sellers. And as the last couple of years have kind of elevated market volatility, we've seen rapid changes in supply chain, rapid changes in commodity prices, and pricing through a manual process is not working for these businesses anymore. So for PROS, the opportunity, we feel like, has actually... like, our value proposition is much more relevant today than it probably ever has been because of just the pace of change, and so many of these companies are looking to modernize their tech stack. We had a customer on our panel at Outperform from Highline Warren, who's in the automotive space, and they are running, you know, pretty old, I would say, infrastructure of ERP systems, but really wanted to get pricing to a better place. So rather than trying to modernize their ERP and go through this whole tech transformation, they quickly implemented PROS. They connected PROS to their ERPs, which then funneled those prices out to their sales rep, and they're getting real-time, AI-optimized prices now on every deal. and they're amazed at the value and the adoption that they're seeing already. And so we believe there's a lot of opportunity in these companies that are still treating pricing in a very manual, offline manner to modernize, and we're making it easier than ever for them to take advantage of our solutions by accelerating time to value and making it easier to connect to the PROS platform. When you look at the deals you've won over the last 12 months, how many of them fall into that category of manual processes versus displacing some of the other solutions out there? I would say on the B2B side, most of them are replacing a manual process. We do displace other solutions from time to time, but the vast majority is going to be manual. Yeah. You guys have talked about B2B being the faster-growing part of the business, but travel is still, you know, something that's very relevant here. Yep. Now that it's back to pre-COVID levels, can you just talk about customer spending behavior, and how that compares to pre-COVID? Yep. What's some of the things that you guys are offering now, are that are most intriguing to customers? Yeah, I'll have John comment a little bit more on the products, but just quickly, to characterize the spending environment, we've seen our deal volumes in travel, especially starting in the second half of last year, start to recover to a normal level. It took a while for there to be a willingness to invest in IT from airlines, mainly because they were focused on bringing back operations. So even though it feels like COVID was over years ago, it still was affecting them and how they were building back up their businesses. And so, we started to really see that improve in the second half of last year. I would say that overall, we're, we're happy with how it continues to improve, but the ASPs are a bit smaller than what we would have historically seen pre-COVID, and I'll give an example of why. Pre-COVID, an airline may, let's say they fly 1 million passengers a year. They may buy a product and pre-buy the volume for, let's say, 5 million passengers a year, and basically factor in the growth that they were expecting when they contract for that solution. Today, they're much more hesitant to overcommit from a volume perspective. There's so much going on in the world, so they're kind of just buying for what they need right now, and then they'll evaluate later, even if it means losing the economies of scale from a pricing perspective. And so I would say we're pleased with the spending and the way that it's progressed, but it's different than it was pre-COVID, so it's changed a bit in terms of how they think about contracting and software spend. On the solution side of things, I think we've really expanded our portfolio. Mm-hmm. So we've been known as the leader in Revenue Management in the airline space for a long time, and a lot of people think about that in terms of dynamic pricing for seats. We log on to an airline's website, we're looking to book travel, we see one price one day. As capacity changes and other factors come into play, that price might change that same day, the next day, so on. But we've expanded our portfolio to do a lot more for airlines. So one of the things that I'm most excited about is we recently brought to market a product that we call Dynamic Ancillary Pricing. So think of not only your ability to get on that flight, but maybe some of the additional add-ons you might buy as part of that travel. So upgraded seats, meals, connectivity, and using the signals that we see from customers to dynamically optimize the price points of all of those add-on capabilities. And I would say that, coupled with some of the other, you know, recent additions to our platform, like our offer marketing solutions, also provides a nice small entry point into PROS, where people can get value very, very quickly. We're talking really now in a matter of weeks, as you know, compared to a bigger transformation-like project. Mm-hmm. John, can we just talk a little bit more about the opportunity set there in travel? A lot of these customers are international airlines, maybe not as much domestic, some pieces that are domestic. Mm-hmm. Is this primarily a net expansion story going forward, or is there still a lot of airlines out there that could come to PROS and become meaningful customers over time? I would say across our portfolio, we do have a lot of the airlines in the world, so there's a lot of expansion, but there are still plenty of new airlines coming to PROS. So we want to make sure that we have something, you know, on the truck for each and every one of those airlines. So where you might think large network carriers and big revenue management projects, you know, forecasting, as Belinda had mentioned, you know, millions of passengers, we also have those same kinds of solutions really dialed and tuned for different parts of that audience. So while we've historically served a lot of the larger carriers, we are bringing on board today more of the smaller or regional carriers or even low-cost carriers on as customers of the PROS platform. One thing I wanted to touch on was a thing that Andres was emphasizing last earnings call, I believe, where B2B and B2C are converging- Yeah ... both in terms of product and I think a little bit on the go-to-market side. Can you just expand on what he means by that? Yeah and how that, you know, shapes this company going forward? I'll start, and then you add, definitely add in. So historically, PROS got their start in the airline industry, and that, when we talk about B2C, that has been a heavy focus of ours from a B2C perspective. We've also been in things like rental car. We do a lot around transportation and logistics, and then we expanded into B2B in the early 2000s and started serving industries like manufacturing, distribution, and services type customers. And over time, what we've seen is, the actual innovations are starting to come together. So the things that we've built from a B2C perspective are now seeing a lot of applicability on the B2B side, and vice versa. An example of this is many B2B companies are actually looking to sell in a B2C way. They want to get closer to their customers. They want to stand up presence in digital marketplaces, and to do that, they need to have pricing solutions and sales solutions that enable their products, which can sometimes be more complex in terms of how do you put together a B2B offer to be surfaced in those types of settings? And I'll have John elaborate a bit more on that. On the flip side, from a B2C perspective or in travel- Okay ... we're actually seeing the opposite of where airlines are wanting to behave more like retailers. They want to manage their flights and where they're going as a catalog of products, rather than just an origin and destination. And all the things that you get along with the flight, your Wi-Fi, your ancillary, your meals, your add-ons, the rental car, the hotel. They want to be able to take advantage of the fact that they're typically first to wallet when somebody's planning a trip and sell you an entire experience, and in order to do that, they need to behave more like retailers, which is a good fit for us because we've been enabling B2B as retailers for many, many years. We have those capabilities, and so the innovation strategy is really bringing those together. We're bringing our go-to-market teams together under one leader, and then, John, I don't know if you want to elaborate a little bit more, on what you see. Yeah, I would say underpinning all of this is one thing, right? Digital technologies are the great equalizer, and so specifically on the B2B side of the business, we're seeing a lot of businesses embrace digital technologies to power more self-service selling and buying motions. And when we look at those self-service buying motions, what's happening is it's starting to pervade not just the way they conventionally sell, but how they sell to and through partners, and it's even expanding all the way down to the end consumer. And so we've got customers who operate in distribution/retail kind of hybrid space, where they're selling to B2C customers, small B2B businesses, large national accounts, and being able to rationalize all those commercial offerings across the same platform is really powerful to them. So we're definitely seeing digital technologies help shape our customer strategies. We even have some customers who are launching their own B2C brands under a conventional B2B business, and so we're seeing a lot more from, the manufacturer/supplier side, trying to get closer to the end consumer, understand better signals, and fine-tune the offerings they bring to market. Take all of that and pair it with the outlook for accelerating growth over time. How does that inform the way you guys think about hiring and sales? 'Cause I know you're indexing very heavily towards B2B. It seems like they're coming closer now. So what does that mean for sales capacity going forward? Yeah, we're still growing the team. We'll definitely continue to invest in our sales team to support the growth. We feel really good about the team that we have to deliver our goals for this year, so any of the hiring that we're doing now is really for next year and thereafter. But you're not gonna see us add capacity at the same rate that we would've maybe a few years ago as we were driving our growth. A lot of what John talked about from an AI perspective, we've actually seen rep productivity improve 20% year-over-year. We're driving greater productivity using things like AI to respond to RFPs or commercial chatbots that help our sales teams with negotiations, and so empowering them and then using our land and expand approach to accelerate deal volume and deal velocity, we can do more without necessarily having to add the same amount of heads as we would have historically, and so we feel really good about the gains that we see. But I think there's even more room for improvement. Just to add to that, one of the things that we've also invested into is the PROS Marketplace, so marketplace.pros.com, as a way for our customers to really understand the full breadth of solutions they have available to them. So as part of that sales cycle, there's just a tremendous amount more research and understanding of our offerings, our products, the value they deliver, that our customers can discover on their own. Yeah. Obviously, a lot of different flavors of AI, and, you know, generative AI is a whole different category than what we've been talking about here. But you did make an announcement of a relationship with Microsoft Copilot. Maybe you can get into that and just the broader generative AI strategy. Yeah, generative AI is really, really, really interesting to us. As I mentioned, we've been doing AI now for a couple of decades, have embraced different models, different techniques all along those years, and for us, generative AI is, is another technique, right? And I think it's important to understand the role that it plays. So generative AI, although is kind of taking over the airwaves and the world today, it's really great for a couple of scenarios. It's great for content creation. It's great for synthesis of data, especially when that data is unstructured. But it's also important to understand where generative AI is not good, and that's around very specific, predictive and prescriptive modeling, right? You don't want to have a, an AI model get really creative when you're dealing with long-standing customer relationships and the prices and products you put in front of them. So we see, you know, an opportunity to combine generative AI with other AI techniques and approaches that we've had in our platform for years now. So a couple weeks ago, we announced a expansion of our partnership with Microsoft. So Microsoft brought to market last year, end of last year, Sales Copilot, a productivity tool for sellers to really step outside the realm of CRM, right? CRM in its current form has been around for 2+ decades, and it's always been a managerial tool, a way to get visibility into what sellers are up to, not necessarily a tool to improve productivity. Microsoft has kind of, you know, flipped that around or flipped it on its head and said: "We want to give sellers a tool that's gonna help them be more productive, be more responsive to their customers." And when you think about the kinds of queries that salespeople need to address, you know, you're talking about information gathering. You're talking about also responding to customers with the right offers. And so now with our partnership with Microsoft, PROS is the first pricing and CPQ solution fully integrated into Microsoft Sales Copilot. That means that when a customer reaches out to a salesperson to get information about a quote, Copilot can actually get that information directly from PROS, put that into a body of an email or other correspondence going out to customers, and that's fully integrated into both Microsoft Dynamics 365 and Salesforce Sales Cloud. It really truly is a great combination of productivity and efficiency gains, like Belinda had mentioned earlier, in the two largest CRM ecosystems in the world. Does that pull you into a lot of deals? You know, Microsoft, establishing this integration with you guys. From a go-to-market perspective, is it a net benefit? I think it's a net benefit. Right now, it's still early on, so this is a brand-new announcement. But I can say two weeks ago at our Outperform conference, this is one of the highlights that I think people were most excited to hear about. And again, like I mentioned before, it's a great wedge for Microsoft as well because this sales copilot can work in the Salesforce ecosystem. So, it's drawing a lot more attention to Microsoft. It's drawing a lot more attention to the strategic partnership that we have with Microsoft, so I do believe it'll be a significant net benefit. Yeah. Microsoft has been actually marketing it at their conferences as well. So while we were marketing it at Outperform, they were marketing it at Build. So I think as we roll forward, a lot more marketing activity and sales enablement, and we expect that we'll see more benefits from this solution, especially as we get into 2025 and 2026. Sticking on go-to-market and sort of the customer journey, you started to do more of a high-velocity sales motion a couple of years ago now. Yep. You've had customers from those cohorts come up for renewal. What sort of expansion characteristics have you seen in that cohort, and how much of a part of the growth algorithm is expansion going forward? Yeah, so I'll, I'll start. So, when we look out at our plan, especially to get to 2026, we've laid out some revenue targets. The land realize expand motion is key to getting there. We believe there's more work we can do in terms of building more rigor around this strategy, and it seems each year we're getting better, and we're seeing that improvement. Last year, we saw sales cycle times improve by 30% from a new logo perspective. We are now seeing faster sales cycle times on expansions as well. So we're seeing customers buy our solution in a quarter and expand a couple of quarters later. We're trying to replicate that same motion across every deal, and so part of that expansion opportunity is factored into the growth equation as we look out for the next couple of years. It's amazing to see some of the new logos that we've come in and how they've already expanded and adopted our solutions. And so we're excited about the strategy and how it's working. Yeah, and there's a lot of lessons learned from that kind of higher velocity expansion motion as well. So some of the things we've even taken back from a go-to-market standpoint are, we've talked about modularizing our platform, and we've continued down that path to make it easier for customers to consume incremental aspects and capabilities of the platform and do so more quickly. So as Belinda had mentioned, you know, now it's not uncommon for us to see expansions start to take place in, you know, a quarter or two after the initial land. And so high volume, high frequency, expansions of iterative functionality, and, you know, after a period of time, people are using the majority of the PROS platform. Belinda, I wanted to talk about the 26 targets. Mm-hmm. You initiated them just over a year ago- Yep At your conference in Denver. It's been a nice journey here for the last six quarters or so, but we're still. There's a bit of a gap between where we're at today and what you're looking to get to. Yeah. Can you talk about the visibility that you guys have as a team that gives you that confidence in those 2026 targets? Yeah. We set ambitious goals. I will say that they are ambitious, but there's a lot of conviction around our goals. Just to reiterate, we set a goal at our Analyst Day last year, in May 2023, to become a Rule of 40 company in 2026. At the time, our most recent fiscal period had us at a Rule of Two. We were burning cash, and we were growing 10%. So the way that we thought about this is we needed to lay the foundation for profitability. We couldn't grow our way to profitability. We had to change some things about the business. A lot of those things are embracing things like AI internally, getting more efficient in our platform and how our solutions are deployed so that we can drive expanded subscription gross margin, expanded services margin, which we've made amazing progress on in the last year. In just a year, we went from a Rule of Two to a Rule of 14. So we're now positive free cash flow. We're looking at expanding margins again further this year. And as we get out to 2026, seeing our top-line revenue growth accelerate at the low end to 16%, and from a free cash flow margin perspective, at the low end at 19%, but call it 20% is roughly the goal. And again, these are ambitious goals, but we feel really good about the changes that we've made in the business, the opportunity that we have to accelerate growth with so much attention on AI. I think that's such a key factor for PROS 'cause we've been evangelizing the sale of AI to solve business challenges for many years, and we finally have a more receptive audience to that value proposition. And then part of the equation is also seeing our travel business continue to recover, kind of at the pace that we've seen. So not a material acceleration or a slowdown, but really just kind of consistently seeing travel continue to book and do better, and look more like it did pre-COVID, which I think the second half of last year was a great indication of that. Our bookings do tend to be back-end loaded, so we're kind of seeing a similar pattern this year as well. But we feel really good. There's a lot of conviction, there's a lot of buy-in across the organization, at all levels of this plan, and we're super thrilled about the progress that we've made so far. Wanted to touch on the seasonality point there. Yes. Because I think it's really important. Is there anything unique about this year from a seasonality perspective? What has changed relative to last year, or is this just a normal part of your business? It's normal. So we do have, we do historically, looking back, tend to be back-end loaded from a bookings perspective. We're also front-end loaded from an expense perspective, and Stefan will tell you that this is a CFO's work, but, we've, we've gotten used to managing the business. So what you'll see with PROS, when you look at our free cash flow, is we typically have a higher burn in Q1 and Q2 because of things like employee incentive and payroll tax, and our biggest marketing event of the year, which is Outperform, which we just had here in May, and then we make up that cash in the back half. From a bookings perspective, it's pretty common in software to see a bigger fourth quarter just as a result of a budget flush. We definitely see that in our business. We saw it last year. We've seen it as every year I can think of going far back. So this year will play out similarly. Where we have some variability can sometimes be from a services perspective of the timing of when certain things come online versus not come online. So, we commented on our Q1 earnings call that we were expecting to see, if you looked at our guidance, it would imply some acceleration in the back half, especially from a total revenue perspective. And part of that was, visibility that we have for services on projects that were signed late last year that are going to go live and the revenue recognition associated with that. And so that's some of the visibility that we have that kind of plays out into the second half guide, if you will. But that seasonality is fairly normal for PROS, and I think in software in general. I want to see if anyone in the crowd here has a question you'd like to ask the team. Anyone here? I think you just talked about pricing, how you price the value. Clearly, you guys deliver excellent value, but you guys talked about that. It's not clear to me how you actually capture the most value. Yeah. You could repeat the question. Yeah. Oh, yeah. So the question was about how we price to capture the value that we provide to our, our customers or if, what our value-based pricing model is. And it's a bit of a somewhat indirect, a little bit, I guess it's kind of direct relationship to value. So from a pricing standpoint, when you look at our solutions that are optimizing price, we price on a revenue under management metric. We price a fixed fee paid annually in advance, and we basically fit customers to a tier. So if you're a $500 million business, you're going to be in the tier that's, let's say these are illustrative and not real. I don't remember what the actual tiers are, but $250 million-$750 million could be a tier. So you pay for that level of revenue under management. So as your business grows, either from the use of PROS or in general, organically, or as you add more of your business to our platform, we have a right to charge more for that solution. On the travel side, it's more of a volume metric from a passengers boarded standpoint, but similar structure where you fit to a tier. And so as the airline grows and flies more and more passengers, PROS can then increase the price at the time that they move from one tier to another. So it's not immediate or fully consumption-based, it is fixed, but we have that kind of, that, the ability to price increase them at the time of renewal and get some of the benefits that we provide via value in revenue creation or in volume passengers flown on the travel side. One thing that I'll just add to that as well. So it's easy to think about price optimization as I'm delivering the best price, and we can... over the years, we've also added new innovations to the platform to add incremental value on top of that. So for example, in the transportation and logistics space, we have an algorithm that gets chained to our price optimization that looks at capacity. And so being able to look at capacity and when that, let's say, shipping container may leave one port and enter another, we can actually use capacity as a way to augment that price optimization, and we can sell these additional algorithms and models on top of the existing base subscription. So capacity-aware optimization. In distribution, for example, we have customers leveraging optimization on the cost side as well. When there's extreme volatility in their raw materials, so say, electrical distribution, and the price of copper, they can actually toggle and look at multiple models to determine the best price going out to the market. We've seen our customers actually realize record-high margins even during inflationary periods, because of some of those additional capabilities, which have additional license fees. You get data on those capabilities? Yes. Yes. Not, not... Correct. Correct. Yeah, every incremental kind of algorithm or module that we're selling has a fee. So there's often this question from investors of like: How do you monetize AI? I think that's the big question right now, like, how do you monetize AI across these software platforms? For PROS, we have always monetized our AI because AI is the product. So anytime we come up, to John's point, with a new capability, like understanding capacity and bolting that on to the price optimization algorithm, they don't just get that, they have to pay for that additional algorithm. Same thing if we do anything around, we have a collaborative quoting feature where we're going to look to embed more AI and provide sales and offer insights. That's going to be an upsell charge to that capability. So it's part of the modular packaging that John actually was instrumental in designing and making sure we're monetizing all of the incremental benefits our customers get from our platform. Great. One in the back. Yeah, my understanding is y'all really have domestic airlines. Yeah. I assume that's because that's their core competency. Yeah. Do you ever have customers that grow out of you, that take it in-house? Yeah. After a certain level of revenues that they get to, just make more sense. So the question was, we understand that PROS doesn't have a strong presence on the domestic airlines and whether or not it's because airlines grow out of essentially using PROS and then go in-house. I actually think it's the opposite. So typically, what we see is airlines will start with a rules-based or internal RM solution and grow to a certain size and realize that they need something more to power and support their network. What's specific about the airlines in the U.S. is a lot of them have homegrown solutions that they've invested in from an R&D perspective for many, many years. Whereas internationally, there are a lot of airlines, we have most of them in the world using our RM solution, that are looking for a vendor-provided solution. And so when we're selling in domestic airlines, we're kind of competing against that internal development that they've built. But we do have a different strategy there. So we have a lot of offerings on our platform outside of Revenue Management, and you can think of our position in domestic as kind of attacking from the outside in. So we have, for example, United using our corporate travel sales solution. So they actually sell a B2B motion using PROS to power those contracts. And there's plenty of examples where those domestic airlines are using, for example, Offer Marketing solutions as well. And so our strategy there is to try to sell them other pieces of the platform, and then it's the never-ending sales cycle of over time. At some point, they'll look at Revenue Management. But I would say historically, looking outside of the big domestic carriers, it's predominantly the opposite. As airlines grow in sophistication, they need a more sophisticated RM solution, which makes them a great fit for PROS. I think we're out of time, so we'll wrap it up there. Please join me in thanking Belinda and John from the PROS team. Thank you!